Air India Shows Signs of Revival

An Air India flight took off from Sardar Vallabhbhai International Airport in Ahmadabad, May 12, 2012.

After several years, Air India Ltd. — which is running on a financial lifeline from the government – is showing signs of a turnaround, at least on the operating side.

India’s civil aviation minister Ajit Singh said recently in Parliament that Air India’s operating performance had improved between April and September 2012.

Passenger revenue had increased by 6.1%, while yield expanded from 3.43 rupees per kilometer to 4.31 rupees per kilometer and the load factor improved from 69.3% to 70.9%, he said.

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The turnaround comes after India’s national carrier cut costs, boosted revenue and productivity and increased passenger traffic following a restructuring plan last April.

The plan involved restructuring the company’s roughly $8 billion debt and hiving off the aircraft maintenance and ground-handling operations into two units.

The government’s plan to infuse 300 billion rupees ($5.45 billion) into the carrier until 2020 will also enable it to receive 27 Dreamliner planes from Boeing Co., pay salaries to its employees and repay borrowings.

Any improvement in the operational and financial fortunes of Air India will be a big relief for the government as it will be able to use the funds in other critical areas, especially at a time when it is facing a cash crunch and is trying to contain the fiscal deficit at 5.3% for this financial year through March.

Consumers will also be happy as a financially-strong national carrier–minus employee strikes and flight disruptions–will offer more flight options at affordable fares.

Airfares have jumped after Kingfisher Airlines Ltd. suspended operations since Oct. 1, leading to a reduction in overall seat capacity in India.

But the path to profit won’t be so easy for Air India.

The airline has posted losses for five straight years since it was combined in 2007 with Indian Airlines Ltd.–the erstwhile carrier that flew mainly on local routes.

The losses climbed to a provisional 78.53 billion rupees ($1.4 billion) in 2011-2012, from 68.65 billion rupees in the previous year.

Mr. Singh blamed the losses to several factors, including “abnormal increase” in the cost of jet fuel, high infrastructure cost in India, increase in financing cost due to rise in interest rates and huge working capital borrowings, fall in the rupee against the dollar, pressure on yields due to the entry of budget carriers on local and overseas routes, and global recession.

The civil aviation ministry set up a panel to suggest ways of improving the profitability of Air India’s routes. Being the national carrier, the airline is required to fly on unprofitable routes in India to maintain air connectivity. A recent study found that between April and June 2012, only 16 of its 184 flights met its overall costs.

To raise revenue and cut costs, Air India has appointed a global real estate consultant to evaluate its properties and to suggest a roadmap for monetizing them.

Air India is also phasing out old planes, returning leased planes and inducting new aircraft, including the more fuel-efficient Dreamliner planes to replace older planes.

It has frozen hiring, relocated some senior officers back to India and closed offices at several overseas locations.

Air India is also hiving off its maintenance, repair and overhaul, and ground handling businesses to create two separate profit centers, transferring 15,400 workers in the process. The move would sharply reduce its aircraft to employee ratio to 1:92 from the current 1:237.

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